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Financial education vital for proactive decision-making

 Sanderson Abel
Financial education is the process of building the knowledge, skills and attitudes to become financially literate.

It is meant to educate people on good money management practices with respect to earning, spending, saving, borrowing, investing and donating to charity.

Financial education is meant to enable people to shift from reactive to proactive decision-making so as to work towards fulfilling their financial goals.

By broadening people’s understanding of financial options and principles, financial education builds the skills necessary for people to use financial products and services.

Financial education also promotes positive attitudes and behaviours that support the more effective use of scarce financial resources.

Financial education is an important tool to help consumers both accept and use the financial products to which they increasingly have access.

Because it can facilitate effective product use, financial education is critical to financial inclusion.

It can help clients to develop the skills to compare and select the best products for their needs and empower them to exercise their rights and responsibilities in the consumer protection equation.

Properly designed, financial education is tailored to the client’s specific context, helping them to understand how financial instruments, formal or informal, can address their daily financial concerns, from the vagaries of daily cash flow to risk management.

Its power lies in its potential to be relevant to anyone and everyone, from the person who contemplates moving savings from under the mattress to a community savings group, to the saver who tries to compare account choices offered by competing banks.

It spans the informal and formal financial sectors, supporting clients’ access to, and more importantly, use of, diverse financial services.

Financial education is important for savings mobilisation because the clients should be aware of the advantages offered through savings, characteristics of the products, and fall back mechanisms in a case of crisis like the collapse of the financial institutions.

The specific objectives of the financial education component should range from improved awareness, confidence, knowledge and understanding of consumers and investors on financial issues to making savvier financial decisions.

They can also involve more tailored priorities including reaching out to specific and potentially vulnerable segments of the population, as well as addressing identified policy priorities.

An increasing amount of attention and resources is being spent on financial education by governments and public authorities worldwide.

To avoid the case of duplication of resources, the establishment of co-ordinated and tailored strategies at national level has been widely considered to be one of the best means to achieve these financial literacy.

These would include in our case banks, insurance companies, pension funds, microfinance institutions, Ministry of Finance, Reserve Bank of Zimbabwe and NGOs doing similar work. These would ensure there is no duplication of resources and development of a uniform curricula as part of the national project on financial education.

What needs to be done is to ensure such national endeavours are a success through removing potential barriers that have been identified in other jurisdiction.

These are limited long-term commitment from stakeholders, difficult co-operation between them, competing interests and mandates, lack of financial and in-kind resources and other implementation issues.

These can be managed through concerted effort of all stakeholders and the buy in of the regulators of the various institutions.

Given the array of potential players in the financial sector, it reflects the real complexity of the financial landscape.

The increasing complexity of our financial system make it clear that strengthening the financial knowledge and skills of the people is critical to the future success and financial stability of our country.

Just like reading and writing, financial education impacts the well-being of every citizen, as well as the economic and social fabric of our communities.

If financial education is not rolled out to the current generation, the future of the financial system becomes uncertain with the success rate and efficacy of new financial product development being compromised.

Financial illiteracy limits the scope of financial sector development in the country as most new products end up without takers hence increasing their failure rate and profitability.

The financial education programme should be able to demonstrate the advantages of saving and explain the social costs incurred due the lack of saving and money management practices. Further the education should suggest how the populace can implement savings decisions and how to take steps to start saving and using banks and other financial market players in the country.

Financial education should motivate the learners to understand the advantages of transactions with mainstream financial institutions and adopt available formal financial services.

Financial inclusion is thus the process of bringing people from the margin to the mainstream, linking them to mainstream financial institutions so that they become customers of banks and are able to access the full range of services – savings, deposits, loans which the banks offer. Financial education is key to promoting Financial Inclusion which is a step towards customer protection as it ensures linkage with mainstream financial institutions so that the hapless borrower is not at the mercy of the informal service providers who charge notoriously high rates of interest.

Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. He can be contacted on abel@baz.org.zw or on 04-744686, 0772463008

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